Loan moratorium: SC breather for distressed borrowers

Satya Prakash

Tribune News Service

New Delhi September 3

The Supreme Court on Thursday ordered banks not to declare any loan account non performing asset (NPA) if it was not so on August 31 when the loan repayment moratorium scheme announced by the RBI ended.

"Accounts not declared NPA as on August 31 shall not be declared NPA for two months," a three-judge Bench led by Justice Ashok Bhushan said in an interim order.

The order protects those accounts from being declared as NPAs which were not NPA's as on August 31.

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The protection from being declared NPAs for such accounts will continue till the petitions seeking interest waiver on loans during COVID19 lockdown were disposed of, it said posting the matter for further hearing on September 10.

While passing the interim order, the Bench -- which also included Justice R Subhash Reddy and Justice MR Shah -- noted that borrowers needed to be protected.

The order came after Solicitor General Tushar Mehta and senior advocate Harish Salve, representing the Centre and Indian Banks' Association respectively, tried to convince the court as to why interest has to be kept alive in order to save banks.

Mehta said banks were free to deal with borrowers and offer them solutions depending upon their specific problems and needs. A one-size-fits-all solution cannot be granted owing to the difference in difficulties faced by different categories of borrowers, he said.

However, the Bench said the RBI needed to issue certain directives to deal with the situation.

"What you do, that's for you to decide. Certain things have to be decided by the Government of India and the RBI. Everything can't be left to the banks," the top court said.

During Thursday's hearing, the Bench made it clear that it was mainly considering two issues -- if banks should be charging interest on interest and if the National Disaster Management Authority under the Disaster Management Act can provide relief with regard to loan repayment in disaster situations.

Announced by RBI in March for three months, the loan moratorium is a legal authorization to debtors to postpone payment of EMIs. it was extended to six months till August 31, 2020.

The RBI and Centre maintained that a complete interest waiver was not possible as banks too had to pay interest to depositors. RBI had said forced waiver of interest on term loans would jeopardise the financial health of banks and would also harm debtors' interests.

Amid uncertainty over loan repayment moratorium scheme that ended on August 31, the Centre and RBI had told the court on Tuesday that it was capable of being extended up to two years in view of COVID19. However, no formal decision had been taken in this regard.

The top court -- which is seized of petitions demanding waiver of interest, or waiver of interest on interest on the suspended EMIs during moratorium -- had earlier commented that there was no point in charging interest on interest.